Will GST mitigate the cascading effects of multiple taxes on healthcare ?

While there may not be a huge impact of GST on medicines, a tax rate of 5 per cent on life-saving drugs that treat diseases like malaria, HIV-AIDS, tuberculosis, and diabetes is expected to marginally increase the prices of medicinal drugs.ETHealthWorld | Updated: June 18, 2017, 12:25 IST

In India, the healthcare sector has grown magnanimously since the last century. Today, the contribution of healthcare to the country’s Gross Domestic Product (GDP) is pegged at 5 per cent. From USD 80 billion in 2012, the healthcare sector is expected to reach USD 150 billion by 2020. Government reforms have played a prominent role in encouraging foreign investments, developing new technologies and defining protocols, to further support this expansion. The Goods and Services Tax (GST) Bill too, was anticipated to aid advancement in the healthcare space.

In the past few months the GST Bill had been the sum and substance of many debates and speculations within the healthcare industry. However, the Government’s decision to keep healthcare out of its gambit, has been a boon for companies as well as consumers. Such a move will help quality healthcare penetrate into nooks and corners of the country, making it not only accessible across urban as well as rural areas, but also affordable for consumers with diverse socio-economic backgrounds, since drastic hikes or reductions in healthcare costs can be avoided. The proposed regulations under GST may also be a boon for increased foreign investments due to tax stability, and a similar dispensation must be maintained at least for the next decade to facilitate increased quality.

Under the ambit of GST, healthcare services refer to any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized systems of medicine in India, and include services by way of transportation of the patient to and from a clinical establishment. However, it does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma. Given the scenario, the decision seems to be promising because if high GST was levied on medical paraphernalia it would have resulted in making healthcare services expensive and unaffordable.

Although an upsurge in taxes of raw materials or machinery can also impact the overall costs in the healthcare ecosystem, GST will facilitate significant cost reduction for importing advanced medical equipment. Under the current tax system, the import of high-end technological equipment for pathological laboratories and services is expensive since the duty levied cannot be filed as tax credit. However, under GST the duty charged on import can be calculated as credit, thus elevating the Indian healthcare industry to international standards by ensuring better technological competency.

While there may not be a huge impact of GST on medicines, a tax rate of 5 per cent on life-saving drugs that treat diseases like malaria, HIV-AIDS, tuberculosis, and diabetes is expected to marginally increase the prices of medicinal drugs. Even as the hospital services are exempted from taxes under GST, the healthcare sector may experience a blow from the GST implementation as outsourced services, along with the aesthetics and outpatient pharmacy are subject to GST tax imposition.

Meanwhile, there needs to be more clarity on how the proposed GST will impact tax-free zones, physician samples, bonus schemes, free sampling and inter-movement of stock transfers. Also, I strongly believe that ensuring standardisation and avoiding ambiguity are of utmost importance for the healthcare sector. To this effect, diagnostic and medical equipments need to have a single tax slab, as opposed to the differential tax slabs proposed.

While this shift is dramatic enough, I am glad that the GST council has decided to make the transition as smooth as possible for India, by not moving the tax needle too drastically on the healthcare related goods and services segments.

Subscribe to our Newsletters

Earlier people used to visit a pharmacy or a medical store only when they used to be sick but today there is an evolving trend. Now people have suddenly realized that there is a huge potential in being healthy.